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Senate Approves Broad-Based Tax Reform Legislation

UPDATED 10:30 AM ET 12/6/2017

After a long and sometimes heated debate, the Senate took a major step toward enactment of landmark tax reform legislation, approving its version of the Tax Cuts and Jobs Act (H.R. 1) at nearly 2:00 a.m. Saturday, Dec. 2.

The bill, as amended by the Senate, was approved on a near party-line vote of 51-49, with Sen. Bob Corker (R-TN) joining the Democrats to vote against the bill.

Following numerous demands by various senators, the Senate approved a consolidated manager’s amendment with some 31 additional amendments to secure the votes for passage of H.R. 1.

It includes a change to the partnership provisions to increase the deduction for pass-through business income to 23%, up from the 17.4% level that was included in the original Finance Committee proposal, as well as provisions to provide a pass-through deduction for distributions from publicly traded partnerships and clarify the definition of a qualified trade or business for purposes of the pass-through deduction. (While the American Retirement Association supports reducing taxes on pass-through businesses, it is concerned about an unintended consequence of the pass-through proposals is that the tax incentives S Corporation owners to sponsor a retirement plan become much less attractive in a lower tax rate environment.)

Other provisions included in the manager’s amendment include changes that would prohibit cash or gift cards as employee achievement awards, improve the employer credit for paid family and medical leave, and clarify the limit on contributions to an ABLE account.

As previously reported, neither bill includes a provision to “Rothify” 401(k) plans, but each does contain a number of other retirement-related provisions, including changes that restrict IRA recharacterization and allow plan loan rollovers.

Commonalities and Differences

In addition to the provisions highlighted above, both the House and Senate bills include these provisions:

  • Repeal of special rule permitting recharacterization of IRA contributions
  • Extended rollover period for certain plan loan offsets
  • Prohibit cash or gift cards as employee achievement awards

Included in the House bill only:

  • Modification of rules governing hardship distributions
  • Modification of rules relating to hardship withdrawals from cash or deferred arrangements
  • Modification of nondiscrimination rules for certain employer-sponsored plans

Included in the Senate bill only:

  • Length-of-service awards for public safety volunteers
  • Allow designated beneficiary of an ABLE account to claim the Saver’s Credit for contributions made to his or her ABLE account

For a helpful side-by-side comparison of the key retirement, executive compensation and employee benefit provisions in the tax reform measures passed by the House on Nov. 16 and the Senate on Dec. 2 from the Groom Law Group, click here.

The House and Senate will now engage in a conference committee to resolve the differences and merge the two versions of H.R. 1 into one final bill. This final version must then be voted on again by the House and Senate. That process could take up to a couple of weeks, with final passage coming in mid-December.